PSE Circular for Brokers No. 2695-98

December 2, 1998 PSE CIRCULAR FOR BROKERS NO. 2695-98 December 1, 1998 PHILIPPINE STOCK EXCHANGE, INC . 4/F Philippine Stock Exchange Center Exchange Road, Ortigas Center Pasig City Attention: Listings & Disclosure Group RE : Legal Proceedings Gentlemen : Please be advised that the Company today received a summons dated 20 November 1998 in connection with a Complaint filed by Philippine Realty & Holdings Corporation in Civil Case No. 67092, entitled "Philippine Realty & Holdings Corporation (Plaintiff) vs . DMCI Project Developers, Inc . , Universal Rightfield Property Holdings, Inc . and Universal Leisure Corporation (Defendants)" , filed before the Regional Trial Court, Branch 161, National Capital Judicial Region, Pasig City, directing the Defendants to enter their appearance in the aforesaid case and to answer the Amended Complaint served to them together with the said summons. In its suit, Plaintiff Philippine Realty & Holdings Corporation ("Philrealty" for short) seeks: 1) To "annul" the assignment by DMCI Project Developers, Inc. ("DMCI") and the Company, in favor of Universal Leisure Corporation ("ULC"), of their rights under a Memorandum of Agreement (hereinafter, "MOA") entered into by and among them and Philrealty, "wherein they pulled together resources for the construction and development of a condominium project", upon the allegation that such assignment is void ab initio ; prLL 2) To collect the following sums of money from ULC: a) P32,534,202.6 plus interest of 3% a month from September 3, 1998 until the same is fully paid, upon the allegation that "ULC has not paid a single installment due" under a certain Contract to Sell "fourteen (14) condominium units and two (2) condominium storage units situated (within the Philippine Stock Exchange Centre)". b) P32,383,972.50 plus interest of 3% a month from September 1, 1998 until the same is fully paid, upon the allegation that "ULC has not paid a single installment due" under a certain Contract to Sell "seventy-four (74) parking slots situated (within the Philippine Stock Exchange Centre)"; c) P500,000.00 as attorney's fees and for litigation expenses, plus costs of suit. In an earlier letter, ULC had advised Philrealty that there is no basis for Philrealty's claims. ULC said in its letter that: "PRHC was a joint venture partner in the Exchange Square Joint Venture together with co-partners DMCI Project Developers, Inc. ("DMCI") and Universal Rightfield Property Holdings, Inc. ("URPHI") by virtue of a Memorandum of Agreement ("MOA") with notarial date of January 6, 1997, as amended. PRHC's contribution to the joint venture was its titled land with an area of 5,090 square meters located along Exchange Road and Jade Drive, Ortigas Center, Pasig City (hereinafter, the "Property"), to constitute 50% ownership of the project, while DMCI and URPHI each contributed cash in the amount of PHP 95.4 Million, or 25% ownership of the project, or for a total of PHP 190.8 Million ("Cash Contribution"). It is provided in par. 2 (a) of the MOA that additional cash contributions will be made by DMCI and URPHI as the project progresses, but due to unfavorable economic conditions, the joint venture project failed to push through, much less progress, as in fact, the parties agreed to dissolve the joint venture. In the meantime, pre-development expenses already amounted to PHP 81.9 Million, which amount was taken from the Cash Contribution, leaving a balance of PHP 110 Million, more or less. LexLib . . . certain units in the proposed Exchange Square have been carmarked for use as a Business Center by ULC, the common subsidiary of URPHI and DMCI. When the project was abandoned, PRHC offered the Penthouse Units at the PSE West Tower as a substitute for the planned Business Center at the Exchange Square. URPHI and DMCI accepted PRHC's offer, as a result of which the Deed was executed over the Penthouse Units for the agreed consideration of PHP 135 Million. The parties then agreed to apply the balance of the Cash Contribution amounting to PHP 110 Million as downpayment, with the balance of PHP 25 Million to be paid in installments. Since by law and contract, the pre-development cost in the amount of PHP 81.9 Million will also have to be shared based on each party's share in the joint venture, PRHC was thus obligated to shoulder 50% of this cost, or PHP 42 Million, which should be paid to URPHI and DMCI. Inasmuch as URPHI and DMCI, on the one hand, and PRHC on the other hand, have become mutual creditors and debtors in their own right, an automatic set-off to the extent of PHP 25 Million has taken place by operation of law. In other words, PRHC's obligation to URPHI and DMCI has been reduced to PHP 17 Million. cdlex DMCI and URPHI, as owner of the credit of PHP 17 Million, have assigned this credit to ULC. Since ULC owes PRHC PHP 30.5 Million under the Contract, ULC's obligation as a result on the assignment has been reduced to PHP 13.5 Million. . . ." In addition, it appears that Philrealty had, contrary to law, disposed of the 5,090 square-meter-Property already contributed to the partnership, by way of a dacion en pago in favor of Metrobank. The Company is, to say the least, "disturbed" by this development, and finds the filing of this case premature, considering that until recently, the parties were in fact discussing and negotiating towards the amicable settlement of this matter. In any case, the Company shall file its Answer to the Amended Complaint in due course. Very truly yours, (SGD.) MA LOUISA M. GONZALES Assistant Corporate Secretary